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Weekly Technical Market Outlook 12/15/2014

After a seven week run up to new highs it appears sellers woke up from their winter naps and turned on their trading terminals. The S&P 500 ($SPX) fell 3.52% last week while small caps ($IWM ) dropped 2.53%, International stocks also finished in the red by 4.66%. Of course we can’t forget the oil market which stumbled 12.4% over the last five trading days.

Trend
While the trend for the U.S. equity market remains positive, I did not like seeing price fall under the prior September high in the final hour of trading on Friday. Because of its round number status no doubt we’ll hear a lot about 2,000 for the S&P this week and why it ‘matters.’

Breadth
While breadth had been improving we still have yet to see the NYSE Common Stock Only Advance-Decline Line break back above its prior high. Two weeks ago I discussed how the other A-D lines had confirmed the most recent high but the broader, NYSE equity only has yet to do so. The Percentage of Stocks Above Their 200-day MA has continued to hit new lows which has only been intensified after last weeks selling.

Decrease in New Low-High
One of my favorite follows on Twitter is Dana Lyons. Dana does some really interesting analysis and produces some great charts that he also shares on his Tumblr. Below is a chart Dana recently shared that shows the data points where the S&P 500 has been near a 52-week high but the breadth, as measured by the number of new lows minus new highs is greater than 2%.

Dana notes that we last saw this occur in August of last year, which as we know did not put a stop to the up trend in stocks. However, the previous instances are hard to ignore.

LIBOROver the last several years the 3-month LIBOR rate has been fairly uneventful in its decent. In its simplest form, LIBOR is the international rate that banks charge each other for short-term loans. When the trend in LIBOR begins to rise that often means banks are growing nervous and are charging a higher premium for loans to one another. During previous dips in the U.S. equity market we haven’t seen a noticeable rise in LIBOR.

However, this last week has been difference. While the market is off just a couple of points LIBOR rose 3.10% which is the largest 1-week increase since 2011 when the S&P downgraded the U.S. and politicians were debating whether they should do their job keep the government open.

A one week move is not something to ring the siren over but I don’t believe it’s something to simply ignore either.

Momentum
Many traders will point to this chart as a reason for last week’s selling. While the S&P made a new high the Relative Strength Index put in a small bearish divergence. Two weeks ago I highlighted the divergence in the MACD histogram as a sign of potential weakening momentum. This lower high in the RSI helped confirm that.

GoldIt seems Oil has gotten most of the attention recently but before that it seems the focus had been on the slide in Gold prices. As Gold broke through its 2013 lows I think many traders wrote it off as a dead asset. But those lows have once again been breached and the bulls have been putting bids under gold over the last two weeks. We now have a sign of a possible false break which is being accompanied by two bullish divergences in momentum: the RSI and MACD indicators.

It appears the bears just didn’t have enough left in the tank to keep driving Gold prices lower. Or many they shifted their focus from the shiny metal to the black gold market, oil, to tickle their fancy. Nonetheless, spot gold prices are back above their prior low and with these weekly bullish momentum divergences, this asset may become interesting to some. However much work is to be done to regain the trust of the market and see the down trend broken. Two weeks of gains is hardly enough to base a complete turnaround on.

60-Minute S&P 500
It seems the fairly long divergence on the MACD is finally getting its day in the sun as price begins to follow its lead. The Relative Strength Index also started putting in a series of lower highs near the intraday top for the S&P 500. Which was soon followed by multiple ‘oversold’ readings which as I wrote about last week, doesn’t mean a bounce has to be produced.

Last Week’s Sector PerformanceAs the major indices sold-off last week traders sought the ‘safety’ of the defensive sectors, most notably Utilities ($XLU) and Consumer Staples ($XLP). Relative to the S&P 500, Energy ($XLE) was the worst performing sector followed by Materials ($XLB).

Year-to-Date Sector PerformanceThe trend continues another week of Health Care ($XLV), Utilities, and Technology ($XLK) in the top spots of relative performance YTD. Energy, Materials, Consumer Discretionary, and Industrials remain under-performers with just a couple of weeks left of 2014.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.